China Lets Its Currency Hit a New High Against the Dollar Just Ahead of a G-20 Meeting

HONG KONG — As global leaders assembled for a meeting in Canada over the weekend, China allowed its currency to close Friday at the strongest level against the dollar since currency policies were overhauled in 2005.

The Chinese central bank set its key daily reference rate for its currency, the renminbi, at 6.7896 per dollar on the fifth trading day since Beijing pledged greater currency flexibility last weekend. The renminbi ended the day at almost exactly that level, having made a total gain against the dollar of 0.5 percent in the last week.

Small as that may seem, the rate changes have been highly significant. Beijing has faced mounting pressure from abroad to let the renminbi strengthen against the dollar, and its decision to begin at least a small rise could take some of the sting out of the contentious currency issue as leaders of the Group of 20 meet in Toronto.

Before China pledged to promote currency flexibility, the issue was expected to dominate the talks. Now, the leaders are expected to focus on the debt crisis in Europe and financial regulation.

So far, the Chinese policy shift has earned guarded praise. President Obama said Thursday that decision represented progress but that it was too early to tell whether the eventual rise in the renminbi would be enough to help rebalance the global economy.

Many economists and American politicians have argued that the renminbi’s value — which was held steady by the Chinese authorities over the last two years to bolster the national economy during the global downturn — is artificially low, and that this gives Chinese exporters an unfair advantage over manufacturers in the United States.

Beijing has long signaled that any appreciation will be gradual and will come on its own terms, rather than in response to international pressure.

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Its careful messages in the last week — conveyed in part through the levels of the daily reference rate — appeared to underline this point.

“The emphasis is on stability,” Glenn Maguire, Asia economist at Société Générale, said Friday at a media briefing in Hong Kong. “They are having to stage a very fine balancing act: On the one hand, they want to be seen to be doing something. On the other, they want to prevent any speculative inflows of capital that would come with any sharper appreciation.”

The Société Générale team expects the renminbi to end 2010 3 to 5 percent stronger against the dollar, as most analysts forecast.

By July 2011, Société Générale expects the renminbi to have risen nearly 10 percent.

Bill Belchere, global economist at Mirae Asset in Hong Kong, wrote in a note Friday that frictions over the currency issue were unlikely to dissipate.

“Unless China allows the renminbi to move much more aggressively than we anticipate, global trade imbalances, which are already re-emerging, will continue to worsen,” Mr. Belchere wrote. “This will heighten trade tensions and intensify volatility in global debt and foreign exchange markets.”

A version of this article appears in print on June 26, 2010, on Page B3 of the New York edition with the headline: China Lets Its Currency Hit a New High Against the Dollar Just Ahead of a G-20 Meeting. Order Reprints|Today's Paper|Subscribe